Loading judgment…
Facts
The assessee, a real estate developer, received INR 69 crores as a non-refundable security deposit from ATS Housing Pvt. Ltd. for a project. The Assessing Officer (AO) treated this as revenue for AY 2014-15. The assessee had also paid INR 69 crores to Logix Builders and Promoters Pvt. Ltd. for development rights, and argued that revenue recognition should follow the Percentage of Completion Method (POCM).
Held
The Tribunal held that the AO and CIT(A) erred in treating the non-refundable security deposit as revenue in AY 2014-15, considering the assessee's adherence to POCM and the prior acceptance of this method by the AO in subsequent scrutiny assessments. The Tribunal also found that Section 194-IA was not applicable to the transaction as it predated the section's effective date, and consequently, no disallowance under Section 40(a)(ia) could be made.
Key Issues
Whether the non-refundable security deposit is revenue in AY 2014-15, the applicability of POCM, and the validity of Section 194-IA and Section 40(a)(ia) provisions in this case.
Sections Cited
250, 143(3), 1941A, 40(a)(ia), 194-IA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “A” BENCH: NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 13.06.2025 passed by Ld. Commissioner of Income Tax (A)-29, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-110242/2017-18 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 20.12.2017 passed u/s 143(3) of the Act pertaining to Assessment Year 2014-15.
Brief facts of the case are that assessee company is engaged in the business of real estate and has entered into development agreement with ATS Housing Pvt. Ltd. towards development of project on the land bearing No.SC-1/A at sector 150, Noida. The assessee company e-filed its return of income, declaring income at NIL on 30.11.2014. The case was selected for complete scrutiny under CASS by way of issue of notice u/s 143(2) of the Act on 31.08.2015. Thereafter, statutory notices u/s 142(1) alongwith questionnaire were also issued from time to time, in response to which details and documents were filed. Thereafter, the AO concluded the assessment vide assessment order dated 20.12.2017 passed u/s 143(3) of the Act and assessed the income at INR 68,98,66,120/-.
Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 13.06.2025, dismissed the appeal of the assessee.
Aggrieved by the order of Ld. CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:-
1. “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals), ["CIT(A)"] is bad, both in the eyes of law and on facts. 2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 69,00,00,000/- made by the AO on account of non-refundable security deposit received from ATS Housing Private Limited treating the same as revenue receipts chargeable to tax in AY 2014-15. (ii) That the abovesaid addition has been confirmed rejecting the detailed submissions and explanations that the assessee being engaged in real estate business is governed by the Accounting Standard-7 "Accounting of construction contracts read with Guidance Note on Accounting of Real Estate Transactions whereby revenue has to be recognised as per the percentage of completion method (POCM) and hence the impugned receipts are not to be recognised as revenue in AY 2014-15.
(iii) That the abovesaid addition has been confirmed rejecting the detailed submissions and explanations and evidences brought on record to justify that the alleged amount has already been recognised as revenue as per the percentage of completion method (POCM) in AY 2016-17 and duly assessed by AO under section 143(3) of the Act.
3. Without prejudice to the above, the learned CIT(A) has erred in ignoring the alternative contention of the assessee that the AO has erred in not allowing the cost incurred by the assessee as expense while treating the alleged amount as revenue receipts. 4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO holding that the assessee is liable to deduct TDS under section 1941A while making payment to Logix Builders and Promoters Private Limited. (ii) That the CIT(A) has erred in confirming the action of the AO rejecting the contention of the assessee that the provisions of section 1941A are not applicable and hence no disallowance under section 40(a)(ia) can be made.
The appellant craves the leave to add, amend or alter any of the grounds of appeal.”
With respect to Ground of appeal
Nos. 1 to 4, Ld.AR submits 5. before us that assessee is engaged in the business of real estate and entered into an agreement with M/s ATS Housing Pvt. Ltd. for the development of the land taken on sub-lease for which it had received non-refundable securities of INR 69 crores in terms of the agreement entered into for development of its projects with the said party. As per agreement, the assessee is entitled for 20% of the net sales revenue generated from the salable area of the project. Ld.AR submits that assessee has recognized its revenue as per ‘Percentage of Completion Method’ (POCM) for real statement project as provided in terms of Accounting Standard
7. (“AS-7”) read with Guidance Note on Accounting for Real Estate Transactions issued by ICAI. Ld.AR Page | 3 submits that assessee has entered into sub-lease agreement with Logix Builders and Promoters Pvt. Ltd. and the Noida Development Authority according to which the assessee has to pay INR 175,48,80,962/- which includes moratorium interest of INR 5,55,15,122/-. As per the Agreement dated 09.04.2012, the assessee has paid INR 69.00 crores for transfer of Development rights in the said plot in terms of the Tri-party Agreement executed between them to M/s Logix Builders and Promotors Pvt. Ltd. (“LBPPL”). The AO has referred the matter to the TPO for determination of Arm’s Length Price (“ALP”) of amount paid to LBPPL who has not proposed any adjustment and accepted the price paid by the assessee. However, the AO treated the said non-refundable securities as revenue of the assessee for the year under appeal and made the addition of the same which is upheld by Ld. CIT(A). Ld.AR submits that since the assessee is following POCM and the Guidance Note issued by ICAI for recognizing its revenue, according to which the assessee has to reach minimum 20% of the construction and thereafter, in terms of the booking receipt, revenue will be recognized. Ld.AR submits that the assessee has started recognizing the revenue form the project from AY 2016-17 and onwards where the non-refundable security of INR 69 crores was got adjusted out of the gross-receipt and due taxes were paid thereon under POCM. Ld. AR further submits that for these years, assessments were completed u/s 143(3) of the Act and AO has accepted the income declared by the assessee. Thus, the addition of INR 69 crores in the year under appeal tantamount to double addition and contrary to the principal of consistency. Ld. AR therefore, prayed for the deletion of the addition made.
6. Ld.AR alternatively submits that addition made in the year under appeal is revenue neutral as the assessee has transferred the amount received as non-refundable security from ATS Hosing Pvt. Ltd. (“ATSHPL”) to M/s LBPPL against the transfer of development rights in the immovable property taken from it on sub-lease. With regard to the allegation of the AO that the said payment is covered under section 194-IA of the Act and thus, any payment without deduction of tax at source attracts disallowance u/s 40(a)(ia) of the Act, ld. AR submits that section 40(a)(ia) was amended w.e.f. 01.04.2015 and applicable from AY 2015-16 onwards and therefore, the provision u/s 40(a)(ia) are not applicable to the year under appeal. With respect to the application of section 194-IA of the Act, ld. AR submits that section 194IA is inserted w.e.f. 01.06.2013 whereas the transactions under reference was completed prior to that date i.e. on 09.04.2013, therefore, provisions of section 194-IA are not applicable to the facts of the present case. He prayed accordingly.
Ld.AR filed a detailed written submission wherein reliance is placed on the various judicial pronouncements. The relevant contents of the written submission are reproduced as under:-
On the other hand, Ld. CIT DR for the Revenue submits that non-refundable receipts are revenue in nature which is apparent form its nomenclature thus, it is a part of the total consideration of the assessee receivable from M/s ATSHPL and order of the lower authorities treating the same as revenue receipts is correct. Ld. CIT DR further submits that before Ld. CIT(A) assessee itself stated the details of total projected receipts which is reproduced at page 72 to 73 of the appellate order and this amount of INR 69.00 crores is treated as part of the gross revenue from the project by the assessee itself. Therefore, he prayed for the confirmation of the addition made by the assessee.
Ld. CIT DR placed reliance on para 9 of order of Ld. CIT(A) who has referred the developer agreement entered into by the assessee with ATSHPL and reached to the conclusion that non-refundable security amount is the revenue receipts in the hands of the assessee and is taxable in the year under appeal. Ld. CIT DR alternatively submits that since the assessee has claimed the said amount as paid to M/s LBPPL against the development rights received under sub- lease agreement therefore, the same is forming part of the total cost of acquisition and since no TDS was made u/s 194-IA of the Act, therefore, deduction of such payment should not be allowed to the assessee as and when the same is claimed as towards cost of acquisition. He prayed accordingly.
Heard the contentions of both parties and perused the material available on record. In the instant case, the assessee has acquired development rights of a plot from M/s LBPPL for the land situated at Sector 105, Noida for a total consideration of INR 1,75,48,80,962/- under sub-lease agreement which was to be paid in trenches, whereas first trench was of INR 69 crores paid to LBPPL and moratorium interest of INR 5,55,15,122/- and remaining amount of INR 1,00,93,65,840/- was to be paid in installments to Noida Authority. Accordingly, total consideration was INR 1,75,48,80,962/- which is to be paid by the assessee.
In terms of the said agreement, assessee has made initial payment of INR 69 crores during the year under appeal to M/s LBPPL and thereafter, assessee has entered into another development agreement with M/s ATSHPL to develop the said property into commercial building whereas the assessee is entitled for 20% of the net sales revenue and received a sum of INR 69 crores as non- refundable security which was claimed to be adjusted against the future payments to be made to the assessee as a part of 20% of its revenue. The case of the revenue is that this amount of INR 69 crores is the revenue receipts for the assessment year under appeal as the same is non-refundable and assessee became the absolute owner of this amount. The AO also observed that assessee had made payment of INR 69 crores to M/s LBPPL on which the provision of section 194- IA of the Act ware applicable however, no TDS as deducted therefore, in terms of provision of section 40(a)(ia) of the Act, this amount is not allowable as expenditure in any of the subsequent AYs.
After careful consideration of the facts and circumstances of the case, we find that assessee is following the POCM for recognizing its revenue where the Revenue is recognized when more than 20% of the construction stood completed as advised by the ICAI in the Guidance Note issued for accounting of real estate projects.
It is further seen that assessee had computed its income on POCM and in subsequent Assessment Years i.e. from AY 2016-17 and onwards, has computed the profits based on POCM where such non-refundable securities was adjusted against the revenue and taxes were paid. These returns filed for these assessment years were subjected to scrutiny assessment u/s 143(3) of the Act wherein the AO has accepted the income declared by the assessee, copies of the said orders are placed before us in Paper Book filed pages 267 to 268 for AY 2016-17, Pages 293 to 294 for AY 2017-18 & Pages 219 to 320 for AY 2018-19 where the reason for scrutiny was real estate transaction and after considering the submission made, no additions were proposed/made by the AO in any of the year.
Once the computation of income by following the POCM is admitted and accepted by the Department where the non-refundable security was claimed as adjusted, again making the addition for the same is double addition. However, on perusal of the financial statements placed before us, we are not able to verify whether the entire non-refundable security was adjusted or any part thereof remained unadjusted. Accordingly, we direct the AO to verify this fact and if any portion of this non-refundable security still remained unadjusted, the same be treated as the income of the assessee for the year before us as to the extent of this amount no adjustment was made by the assessee.
Regarding observation of the AO to invoke the provision of section 194-IA of the Act and we find that the assessee has made the payment of INR 69 crores to M/s LBPPL on 09.04.2013 whereas section 194-IA was inserted in the statute w.e.f. 01.06.2013 by Finance Act, 2013. Since the payment of INR 69.00 crores was made prior to 01.06.2013, the same cannot be held as covered u/s 194IA of the Act. With respect to the application of provisions of section 40(a)(ia) of the Act on such payments, it is observed that section 40(a)(ia) has been amended w.e.f. AY 2015-16 wherein section 194- IA was included in the said section and applicable from AY 2015-16 and onwards. Therefore, no disallowance could be made for non- deduction of tax at source u/s 194-IA by taking resort to section 40(a)(ia) of the Act.
In view of the above discussion and as per the directions given herein above, Grounds of appeal Nos. 1 to 4 raised by the assessee are partly allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 21.01.2026.